‘The Best Laid Plans’

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Planning and Economic Growth

[‘No Room! No Room!’ (1987)]

Previous work on housing for Policy Exchange with Oliver Hartwich:-

Unaffordable Housing: Fables and Myths – February 2005 (Thinktank Publication of the Year, 2005)

Bigger Better Faster More: Why Some Countries Plan Better Than Others – June 2005

Better Homes Greener Cities – February 2006

British homes are smaller than those in other countries in Western Europe (except Portugal, Greece, and Finland)

New homes in the UK are, without exception, the smallest in Western Europe

The average density in Germany is about the same as in the UK- new homes are cheaper and substantially larger.

(Richard Rogers thought that this was because they had better architects!)

COMPARISON OF DWELLING SIZES Newly built dwellings

Floor space (m2) Number of rooms Room size (m2)

UK 76 4.8 15.8

Italy 81.5 3.8 21.4

Portugal 82.2 4.7 17.5

Sweden 83 4 20.8

Finland 87.1 4 21.8

Ireland 87.7 5.2 16.9

Austria 96 3.7 25.9

Spain 96.6 5.1 18.9

Luxembourg 104.1 5.1 20.4

Germany 109.2 5.1 21.4

France 112.8 4.2 26.9

Netherlands 115.5 4.1 28.2

Belgium 119 5.8 20.5

Greece 126.4 3.2 39.5

Denmark 137 3.5 39.1

The effect is redistributive and divisive

-the haves versus the have-nots

-the old versus the young

The Policy of Constraint –

The Effect on Commerce and Industry

Remember – it was not planned

It was planned that there would be sufficient land through ‘New Towns’, regional policy, etc

The Green Belts simply prevented wasteful sprawl

The predictions on which the plans were based were wrong, and so the plans were wrong

‘The containment of urban England’ was evident by the early seventies

Planners and government denied until 1992 that the policy of constraint affected prices.

A misunderstanding of Ricardian rent theory.

So now government accepts that constraints on land availability increase house prices. (Or does it?)

But planners (and politicians) don’t think economically – the Rogers Report had virtually no economic input and was economically illiterate.

‘It’s up to planners to plan and the market to follow’

But what if the best land use plan results in a sub-optimal economy?

Table 1: Land value for different uses in the regions Region Mixed agricultural

land, £/ha Land for residential

use, £/ha Industrial and

warehousing, £/ha Business class

B1, £/ha North East 6,701 2,210,000 167,000 235,000 North West 9,633 2,740,000 425,000 583,000 Yorkshire/Humberside 9,159 2,330,000 522,000 557,000 East Midlands 7,595 2,060,000 438,000 500,000 West Midlands 11,945 2,200,000 525,000 639,000 Eastern 7,739 3,615,000 1,038,000 1,269,000 South East 11,787 3,240,000 1,393,000 1,672,000 South West 10,416 2,340,000 662,000 760,000 Wales 9,774 2,270,000 223,000 266,000 England & Wales* 10,023 2,600,000 660,000 779,000 London n/a 7,625,000 1,767,000 2,138,000 (*excluding London)

In the eighties residential and industrial land uses tracked each other in the South.

A period of change in the early nineties

-taxes on residential land use were reduced

-Use class B1 was introduced combining office and industrial uses

-A large number of retail developments were permitted

-Shopping hours were substantially extended

Result: Residential land prices have risen relative to other land use prices

What would we expect to happen?

Heckscher Ohlin theory says:

Land using activities should move elsewhere, i.e. manufacturing

Land intensive activities should become dominant

Table 2: Composition of exports in European economiesi

UK Germany France €bn % €bn % €bn % Goods 281 43 732 76 339 63 Services 146 22 114 12 89 17 Receipts of Income 205 32 107 11 87 16 Transfers 19 3 16 1 21 4 Totals 650 100 969 100 536 100

i United Kingdom Balance of Payments: The Pink Book 2005, www.statistics.gov.uk; Germany: German Balance of Payments in 2004 and Balance of Payments by Region, August 2005, Deutsche Bundesbank, www.bundesbank.de; France, 2004 Rapport Annuel, La Balance des Paiements et la Position Extérieure de la France, www.banque-france.fr

Tiefenbrun in the Journal of the Royal Society of Arts, August 2006.

‘the sad truth is that nobody in Britain has built a major manufacturing company from scratch since the time of the Attlee government of 1945. . . . .No other country has such a pathetic track record of manufacturing business creation. All our major manufacturers pre-date the Second World War’.

Or the Town and Country Planning Act of 1947!

Figure 2: Total occupation cost of prime industrial spacei

i http://www.kingsturge.com/resources/library/0/research/2006/01Aug/160820063317_pdf.pdf

Figure 3: Occupation costs in world cities[i] http://www.cbre.com/USA/Research/Market+Reports/Global+Market+Rents/

Occupation cost US$/square foot per annum

0

20

40

60

80

100

120

140

160

180

200

Housing and Brown Field Sites

-because most brown field sites are in a profitable use, the policy of encouraging house building on old factory sites strengthens the pressure on other activities

- earlier there was a presumption of separation with land for manufacturing industry being somewhat protected, particularly in the North.

Other Policy Aims

Regional Policy?

Not since Thatcher has a government claimed this.

Then, because high land prices were not a consequence of constraint.

Now, because simply deterring companies from the South does not mean that they go north!

A Policy for Urban Regeneration

But what are the costs?

A Policy for Sustainability (Global, that is)

But building tall buildings is expensive and inefficient

Importing manufactured goods from elsewhere in the world does not necessarily reduce CO2 emissions and fuel use

Other consequences for the population

High living costs because the cost of land is high

UBS study of 71 cities round the world (Feb-July 2006)

Cost of a ‘Weekend Break’ in US dollars

1. London 1,180 USD

2. Tokyo 1090

3. Geneva 940

4. New York 920

Living Cost Price Index (inc Rent)

1. London 105.5

2. New York 100

Living Cost Index (exc Rent)

1. Oslo 121.5

2. London 110.6

3. Copenhagen 109.2

7. New York 100

Wage Level Indices

6. London 89.2 (gross) 96.0 (net)

Domestic Purchasing Power of Wages

London ranks between 17th and 23rd

But this is with a measure of the cost of living which excludes rent

Including rent it drops to something like 40th

- UBS does not do the calculation

Another measure- How much does IKEA charge for a standard package of five large items?

UK £1483 (VAT rate 17.5)

France £1453 (VAT rate 19.6)

Italy £1450 (VAT rate 20.0)

-

-

-

Germany £1229

Other non-price costs

High space costs have other effects

Lack of choice – the clone town

Crowding – the two (or three) sittings restaurant

Which is why, on a BBC survey 13% of the population is hoping to emigrate “in search of a better quality of life, better weather and a feeling that the UK is too expensive.”

The Distributional Problem

Constraint on housing favours older home owners at the expense of renters, young would-be owners, and young owners who wish to trade up

Constraint in other areas favours share owners, those with accumulated pension investments in land, etc.

The whole system of constraint is thoroughly regressive – which is why it’s favoured by the middle classes.

Systemic (non-constraint) problems

Delay would not be bad if the result were better decisions, but is the system rational?

1. Is delay because bureaucracy is built in?

2. Is it rational that Kate Barker can investigate the whole system in less than a year, whilst inquiries into a temporary terminal at Coventry Airport lasted years? Should she not have had QCs and expert witnesses and cross-examination and exhibits and so on?

3. Is delay built in because it keeps objectors happy? Politicians can assure people that they have looked into things thoroughly.

4. Would less consideration of detail be better?

Growth Italian Style

‘Il Sorpasso’

In the Val Vibrata, in central Italy, “every house has turned into a factory” and growth has been spectacular.

In the late eighties The Times said that this should be an example to the English of what could be achieved in backward rural areas.

But the UK planning system would soon put a stop to any such ideas.

As would the British as neighbours.

Interest rates

Because of the housing market and endemic rising prices interest rates in the UK are frequently raised to slow down the housing boom. This impacts on industry.

Recommendations

1. Get rid of ‘plan led’ planning.

2. Rethink green belts in the interest of sustainability.

3. A Social Cost Tariff – the social value of green fields. If this can be paid there should be a presumption in favour of development.

4. Less concern with detail – promote simplified planning zones

5. Incentive to local governments to allow development i.e. they retain the tax income which results. At present there are disincentives rather than incentives

Postscript

Why are the British so concerned about land?

1. Complete misapprehension (Barker)

2. Propaganda from the CPRE and its allies

3. The psychology of the way of life (people are kept away from the country so that they can’t spoil it)

4. The psychology of inter-urban travel

5. The flatness of England, the south in particular

6. Is it, in fact, completely irrational, a matter of faith not reason.